KOCHI: Prasad Krishnan who migrated to the Gulf early this year, recently availed an interestfree loan from his employers, not to meet any urgent financial requirement at home but to reap the benefits of falling rupee against dollar.

"It is like getting an increment in the middle of the year," the 35-year-old accountant working in Dubai says.

Krishnan is not an exception. Thousands of the two million non-resident Keralites working abroad are borrowing money at varying costs to make use of the arbitrage advantage in the foreign exchange market. And by doing this they are helping the Indian government.

At a time when rupee is on a freefall and there is a slowdown in consumer demand, these NRIs are sending much-needed foreign exchange into the country like never before, and most this money is expected to be spent on cars, jewellery, clothes and other consumer items as real estate and stock markets are not seen as strong investment options in the current scenario.

NRIs' deposits with banks in Kerala jumped 14.4% in three months to a record Rs 75,700 crore as on June 30. And marketers of everything from cars and electronics to jewellery and clothes expect a jump in sales in Onam next month.

However, while these NRIs are helping the country's economy, experts warn that they may end up hurting themselves by borrowing more than what they can repay.

Expatriate workers often borrow from banks and even take money on credit cards to take advantage whenever the rupee falls, says K V Shamsudheen, Sharjah-based chairman of Pravasi Bandhu Welfare Trust, a charitable society to help NRIs. "The borrower ends up in jail if he does not honour his cheque," he adds.

RECORD REMITTANCES

NRIs are queuing up before banks and exchange houses in the Middle East to send money back home to take advantage of rupee's free fall this year, particularly since mid May when the US announced plans to roll back its stimulus package.

Â The currency lost 20% against the dollar since the start of the year to hit a record low of 68.85 earlier this week. On Friday, it closed at 65.70 versus dollar. Bankers say the NRE term deposits in Kerala have increased significantly from June level of Rs 75,700 crore.

Abraham Thariyan, executive director at Thrissur-based South Indian Bank, says between April and August 23, the inflow into the NRI deposits of the bank rose 35% from the same period last year.

He says the relaxation in SLR-CRR requirements for NRE deposits for more than three years has helped banks to hike the interest rates for such deposits. Many banks this week raised deposit rates to attract more NRI money. "The rate hike is sure to attract more deposits", Thariyan says. Kerala, with migrant worker population of 2.29 million, is the top remittance receiving state in the country. In 2011, total remittances were around Rs 60,000 crore, accounting for nearly 31 % of the state income.

RETAILER'S DREAM

Till recently, NRI money funded Kerala's real estate boom. However, the fall in realty prices has affected this market. A small portion of the money is expected to go into investments in land, which is scarce in the state. Stock market is also not a viable proposition at present.

So, a large part of the remittance income is likely to fund a consumption boom. Except for textiles, the retail sector is yet to feel the impact of the higher remittance inflow, but it is readying for a boom in the festive season starting with Onam next month. Eldo Benjamin, general manager - sales at Nippon Toyota, top Toyota car dealer in Kochi, says 60% of sales happen between August-December.

Sales of textiles, which peak during the Ramadan and Onam festivals season, have already started rising in the state. "Our sales are higher by around 15 % compared to last year," Govind Kamath, partner at Jayalakshmi Silks, says. Gold jewellers are not so confident, though, because of the sudden spurt in prices with rupee's fall. In August alone the yellow metal prices rose about 13% to Rs 33,438 for 10 grams on Friday.

"The sales improved during the period starting from April to the beginning of June when the prices declined. But after that the increase in price has affected the sales," P P Jose, chief operating officer at top jeweller Joy Alukkas, says.